Bush opposes Democrats' student-loan rate cut

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Published: Jan 16, 2007 10:13 p.m. ET

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(Updates to add details of GOP tuition plan)

By John Godfrey

Of DOW JONES NEWSWIRES

WASHINGTON (MarketWatch) -- Warning that it may be bad to encourage students to borrow more, the White House announced Tuesday that it is opposed to a student loan interest rate cut being pushed this week by House Democrats.

"Student debt loads have soared in recent years, and it is not clear that encouraging more loans is a wise course," the White House's Office of Management and Budget said in a statement of opposition. Encouraging more debt could "fuel today's upward tuition spiral," the OMB warned.

A statement of opposition is stronger than one expressing "concerns" but is several steps shy of the threat of a veto.

The House bill would raise fees on and cut profit margins for student lenders to offset a proposed cut in student-loan interest rates for lower-income families.

According to an estimate of the bill released Tuesday afternoon by the Congressional Budget Office, the rate cut would cost $8.1 billion over the next five years.

Increased loan fees would raise $2.7 billion and reducing guaranteed lender profit margins would raise another $2.5 billion over the same period, according to CBO. The remainder of the cost would be raised by reducing lender guarantees and retaining certain guaranty agency collections.

A Senate version of the interest rate cut plan would encourage students to use direct loan programs, in theory saving money by cutting out private sector middlemen.

Student-loan giant Sallie Mae (SLM) has begun lobbying against the proposals, taking out an advertisement in at least one Capitol Hill newspaper encouraging readers to "tell Congress to give students real help. Don't cut the programs they need."

While Democrats and student advocacy groups are pressing these and other proposals to make it easier for students to pay the ever-increasing cost of higher education, not on the table so far are proposals to bring tuition growth under control.

According to the OMB, spending on federal student aid has increased by 57% over the last six years.

Now, said the OMB, colleges must take joint responsibility for making college education affordable.

The House is expected to vote on their version of the bill Thursday. Despite promising during the 2006 campaign to allow more open debate of such measures, House Democrats plan to block Republicans from offering any amendments to the bill.

Rep. Howard McKeon, R-Calif., would like to amend the bill to hold colleges accountable for their tuition costs.

For example, under his proposals, any school that raises its tuition at more than twice the rate of the consumer price index would be required to tell students and parents what factors led to the increase.

"With the federal investment in college student aid reaching record levels each and every year, the fact that costs continue to rise should make it clear that money alone is not the solution to the college cost crisis," said McKeon.

McKeon's proposal would also revamp a Department of Education Internet site to include information about college costs including each school's "sticker price", the net tuition price after the average value of grants is subtracted, and the change in value of both over time. The schools with the fastest growing prices would also be asked to create a private task force to try to work together to bring their costs under control.

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